Bend real estate sector warned of affordable housing backlash

Panelists predict growth will continue

Bend’s inevitable growth and how the city and real estate industry should respond to it dominated the Bend Chamber of Commerce’s annual Real Estate Forecast Thursday.

With the city expecting to add at least 30,000 new residents over the next 12 years, panelists focused more on the challenges that come with such growth. Keynote speaker and commercial real estate broker Brian Fratzke predicted that Bend will continue to be a popular destination for people from more expensive real estate markets, and that will continue to drive up prices of homes and apartments.

With the Oregon Legislature considering a bill that would undo the state’s ban on rent control, however, Fratzke said rent control could be a “black swan” event for the local market.

“The Black Swan,” by former stock trader Nassim Nicholas Taleb, posits that events that are deemed improbable are almost never foreseen by experts but have a disproportionate effect on markets and history.

Garrett Stephenson, a land use attorney in the Portland office of Schwabe, Williamson & Wyatt, urged Bend’s real estate and development community to get involved in solving the city’s housing affordability problem. Otherwise, he said, local real estate developers could find themselves on the receiving end of a regulatory backlash.

“Don’t ignore it,” Stephenson said. “The more affordable housing, workforce housing you can build under a market-rate system, the less intense and less dramatic the regulatory response will be.”

Stephenson said he thinks House Bill 2004, currently before the Oregon Senate Committee on Human Services, will pass, but that it will also prompt litigation. The bill would allow local governments to adopt rent-control measures that provide a fair rate of return to landlords. Stephenson said there could be lawsuits around the definition of that rate of return.

Portland has already adopted inclusionary housing, which requires a portion of all new residential buildings with 20 or more units to include affordable units, or that the builder make payments in lieu of construction. The speed with which the city created the program took Portland’s real estate industry by surprise, Stephenson said.

“Everybody thought, myself included, ‘We have time to work on this and there might be a grand bargain like in Seattle, where the developers and city and rent-control advocates all got together and hammered out something,’” he said. “There was not a lot of successful input from the development community.”

Assistant City Manager Jon Skidmore said there’s good news about Bend’s overall housing supply and affordable housing, but the supply is held back by a lack of infrastructure.

The supply of new housing is increasing at an appropriate rate, Skidmore said. Since July 1, the city has issued 621 building permits for single-family, detached dwellings. The Central Oregon Builders Association believes 800 to 1,000 new permits per year is “healthy” for a market the size of Bend, he said. “So we’re probably going to hit that target.”

In addition, 780 units of multifamily housing are under construction with 320 more units in the development pipeline, Skidmore said.

He said Bend has been proactive on the affordable housing front. The city adopted in January 2016 an ordinance permitting accessory dwelling units, also known as granny flats, and 81 have been permitted to-date, he said.

Bend was also the first city in Oregon to adopt a construction excise tax, which is a building-permit fee that goes to subsidizing affordable housing, Skidmore said.

The recent expansion of Bend’s urban growth boundary could open to development about 2,400 acres, but Skidmore said there isn’t sufficient water, sewer and road infrastructure serving those areas.

“Before we see many of the expansion areas or even some of the infill areas develop, we’ve got some very tough conversations that need to happen,” Skidmore said. “How do we afford sewer, water and streets? There’s a lot of pressure for us to figure that out in short order.”